14 FEBRUARY 2014

CHINA STRATEGY
A time for bottom fishing
China valuations are at record lows, though macro-economic concerns persist China is trading at its lowest one-year forward valuations relative to Asia ex-Japan for more than two years. Some of the underperformance can be justified by concerns over growth (disappointing PMI), asset quality, liquidity and reform implementation, with potential WMP failure an issue for the large banks.
We see opportunities in fundamentally-sound stocks at rock bottom price Chinese equity valuations have been cheap for more than two years but with the relatively less risky sectors of new China ie, technology, gaming and consumer staples appearing expensive and over-owned. Were not recommending investors move out of these, but we note significant opportunity for stock picking among the under-owned and under-valued sectors. We have found fundamentally-sound stocks trading at rock-bottom valuations, some with historically-high dividend yields offering support. Our China bottom-fishing basket: eight stocks from five diverse sectors We have screened for liquid stocks that have declined more than 20% from their 2013 peaks and are trading at less than 2x PBV and 10x PE with at least 10% forecast earnings growth and fundamentally-positive views from our analysts. This yields eight stocks: China Mobile, China Com Service, China Life, Minsheng Bank, Chonqing Rural Commercial Bank, Great Wall Motor, CNBM and Petrochina. Our basket comes from five diverse sectors and we feel is a mixture of safe and 'risky names.

Stock valuations
--------------- P/E --------------2014E (x) China ComService China Life China Mobile Chongqing Rural Commercial Bank CNBM Great Wall Motor Minsheng Bank PetroChina Priced on 13 Feb 2014 Sources: Bloomberg; BNP Paribas estimates 7.8 13.3 9.3 3.5 4.8 8.7 3.8 7.6 2015E (x) 7.8 11.5 9.0 3.5 5.0 7.2 3.6 6.8 ---------- EV/EBIDTA ---------2014E (x) 3.0 2.8 7.1 5.5 4.1 2015E (x) 2.6 2.5 7.1 4.3 3.9 --------------- P/BV --------------2014E (x) 1.0 1.9 1.3 0.5 0.8 2.7 0.8 0.9 0.7 2.2 0.7 0.8 2015E (x) 0.9 1.7 1.2

Manishi Raychaudhuri

Gautam Mehta

Rajan Jain
rajan.jain@asia.bnpparibas.com +91 22 6176 5624

manishi.raychaudhuri@asia.bnpparibas.com gautam.mehta@asia.bnpparibas.com +91 22 33704357 +91 22 3370 4346

Our research is available on Thomson One, Bloomberg, TheMarkets.com, Factset and on http://eqresearch.bnpparibas.com/index. Please contact your salesperson for authorisation. Please see the important notice on the inside back cover.

PREPARED BY NON-US BROKER-DEALER(S): BNP PARIBAS SECURITIES INDIA PVT LTD THIS MATERIAL HAS BEEN APPROVED FOR U.S DISTRIBUTION. ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES CAN BE FOUND AT APPENDIX ON PAGE 17

China Strategy

Manishi Raychaudhuri

CONTENTS
Time to bottom fish in China............................................................................................................................................... 3 The macro-economic backdrop remains worrying......................................................................................................... 3 But bottom-fishing could be selectively profitable ........................................................................................................ 4 Our bottom fishing methodology........................................................................................................................................ 6 Our basket of China stocks .................................................................................................................................................. 6 Company reports ................................................................................................................................................................... 9

BNP PARIBAS

14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

Time to bottom fish in China

China has underperformed Asia massively. Thats common knowledge. The extent of this underperformance becomes clear when one looks at the relative valuation of China over past decade. Compared to its own history and relative to the MSCI AxJ, Chinese valuations are more than one standard deviation below the long term average.

EXHIBIT 1: China 12-mth fwd P/E

(x) 30

EXHIBIT 2: China 12-mth fwd P/BV

(x) 5.0 4.5

25

4.0 3.5

20

3.0
15 + 1 SD Avg. 10 - 1 SD

2.5 2.0 1.5 1.0 0.5 03 04 05 06 07 08 09 10 11 12 13

+ 1 SD Avg. - 1 SD

5 03 04 05 06 07 08 09 10 11 12 13
Source: Factset

Source: Factset

At a P/B of close to 1x and PE of 8.1x, China appears cheap on any parameter. Even when one strips out banks the cheapest sector the valuations dont change much (PE of 11 and P/BV of 1.4).

EXHIBIT 3: China 12-mth fwd P/E (ex-banks)

(x) 30 25 20 15 10 5 0 + 1 SD Mean - 1 SD

EXHIBIT 4: China 12-mth fwd P/BV (ex banks)

(x) 6 5 4 3 2 1 0 + 1 SD Mean - 1 SD

Jun-06

Nov-05

Jan-07

Dec-09

Jul-10

Jun-13

May-09

Aug-07

Nov-12

Feb-04

Mar-08

Sep-04

Feb-11

Sep-11

Jan-14

Apr-05

Oct-08

Apr-12

Jun-13

Dec-09

Nov-05

May-09

Source: Factset

Source: Factset

The macro-economic backdrop remains worrying

Recent Chinese underperformance has, in our view, been driven by increasing investor concern over Chinas growth prospects. Economic data releases have been mixed of late. Although economic growth was stable, that it was achieved alongside rising local government debt worried the market, in our view. The recent PMI data has also been mixed. Although the market had expected moderation, the 49.6 reading of the January HSBC flash PMI still missed the Bloomberg consensus expectation. BNPP China Economist XD Chen believes that the PMI data suggests that economic moderation has carried into the New Year. China PMI New Orders a leading indicator also suggests that growth may remain subdued. XD Chen also believes that the tightening measures to be announced will inevitably weigh on investment growth, and cant be fully offset by stronger exports or private investment.

Aug-07

Sep-04

BNP PARIBAS

14 FEBRUARY 2014

Nov-12

Jun-06

Jan-07

Feb-11

Mar-08

Sep-11

Feb-04

Jan-14

Oct-08

Jul-10

Apr-05

Apr-12

China Strategy

Manishi Raychaudhuri

EXHIBIT 5: China PMI

(index) 58

EXHIBIT 6: China PMI New Orders

(index) 70

60
53

48

50

43

40

38 05 06 07 08 09 10 11 12 13
Source: Bloomberg

30 Jul-06

Aug-07

Sep-08

Oct-09

Nov-10

Dec-11

Jan-13

Source: Bloomberg

Following news reports of potential defaults in certain wealth management products, we believe investors concerns on the potential risks in the Chinese shadow banking system have resurfaced. Despite the authorities attempts in 2013 to cool the issuance of wealth management products, the problem seems far from over. WMP issuance actually accelerated in 2H13 (Exhibit 8).

EXHIBIT 7: China TSF

(RMB b) 3,000 2,500 2,000 1,500 1,000 500 0 (500)

EXHIBIT 8: China WMP issuance

Source: Bloomberg

Jan-03 Aug-03 Mar-04 Oct-04 May-05 Dec-05 Jul-06 Feb-07 Sep-07 Apr-08 Nov-08 Jun-09 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Jul-13

Source: Reuters Ecowin Pro

Ultimately, we believe the implementation of reform measures is key to the future of Chinese equities. The reform rhetoric has clearly been stepped up and BNPP economists believe the present Chinese leadership has stronger political capital to implement reforms than previous ones. However, proof of the pudding shall be in the eating, and we could get some indications of the timeline of reform implementation during the upcoming National Peoples Congress (NPC) in early March.

But bottom-fishing could be selectively profitable

China has been trading at cheap valuations for more than two years so why are we talking about bottom-fishing now? We have four reasons: 1 Several interesting and fundamentally sound stocks in China are trading at rockbottom valuations with historically-high dividend yields offering support. 2 The QE taper scare seems to be receding, and some macro-economic data points from China (e.g. export growth) could abate growth concerns.

BNP PARIBAS

14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

3 The upcoming National Peoples Congress (NPC) on 5 March should give investors a sense of the governments growth and money supply targets, and could even provide some roadmap of reform implementation. Historically, such announcements have led to significant relief rallies in the market. BNPP China Economist XD Chen believes that the government will immediately implement reforms in areas such as administrative approval, enterprises registration, relaxation of one-child policy, abolishment of re-education camps. We expect reforms in local government finances, the financial sector and over land to be gradually implemented through the year. 4 Earnings estimates in China seem to have bottomed out. The Factset consensus 2014 EPS estimate for China has been flat over the past five months. After a false start towards upgrades in August 2013, it declined again and is effectively flat today on levels in July/August. More encouraging is the fact that the breadth of upward earnings revisions (ERI) have increased. China is the only market in Asia which has a positive ERI today implying that there are more upgrades than downgrades.

EXHIBIT 9: China EPS estimate progression (MSCI China)

(index) 6.8 6.6 6.4 6.2 6.0 5.8 5.6 5.4 5.2 5.0 2013 2014

EXHIBIT 10: China ERI

(index) 0.8 0.6 0.4 0.2 0.0 (0.2) (0.4) (0.6) (0.8)

Mar-12

Sep-12

Mar-13

Jun-12

Jun-13

Sep-13

Dec-13

Dec-12

Source: Factset

Source: Factset

Ownership skew points the way

There is an extremely skewed ownership pattern across sectors in China, and bottom-fishing almost by definition takes place in under-owned stocks and sectors. Going by institutional ownership, materials, financials and industrials are the most disliked sectors in China today (Exhibit 11). If we can find fundamentally-good stocks in under-owned sectors, the probability of generating super-normal returns could be all the more higher.

EXHIBIT 11: Sectorwise ownership in China

Financials Materials Industrials Healthcare Utilities Energy Consumer Staples Consumer Disc Telecom IT (30)
Sources: EPFR; Factset

(25)

(20)

(15)

(10)

(5)

BNP PARIBAS

Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13
(%) 10

14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

Thats not to say we are recommending investors switch out of the over-owned but attractive sectors of China technology, consumer staples and gaming. However, we note that their steep valuations and high ownership could mean they underperform in the near term.

Our bottom fishing methodology

Post the recent market correction, we conducted a bottom fishing screen for China stocks on the following criteria: 1 Market cap of greater than USD2b and average daily turnover of more than USD5m; 2 Stock price decline of at least 20% from 2013 peak; 3 2014E P/BV of below 2.0x (on BNPP estimates); 4 2014E P/E of below 10.0x (on BNPP estimates); 5 2014E EPS growth of more than 10% and BNPP EPS estimate above Bloomberg consensus estimate; and 6 Dividend yield of more than 3%. From among the stocks that were screened using the quantitative screener, we choose ones that were BUY rated by BNPP analysts and where analysts are confident of positive catalysts emerging in the medium term. This last criterion addresses the problem of finding good stocks in disliked sectors.

Our basket of China stocks

Our bottom-fishing basket of Chinese stocks is quite diverse across five sectors; banks, autos, insurance, telecommunication and commodities (cement and oil). This implies that the recent correction in China and the availability of cheap stocks is quite broad based. Only new China sectors technology, gaming, consumer staples are not in our list.

EXHIBIT 12: Our basket of China stocks

BBG code Rec Price (LC) China ComService China Life China Mobile Chongqing Rural Commercial Bank CNBM Great Wall Motor Minsheng Bank PetroChina Priced on 13 Feb 2014 Sources: Bloomberg; BNP Paribas estimates 552 HK 2628 HK 941 HK 3618 HK 3323 HK 2333 HK 1988 HK 857 HK BUY BUY BUY BUY BUY BUY BUY BUY 4.17 21.50 73.05 3.44 7.80 37.25 7.87 7.81 Target (LC) 5.60 26.50 90.00 4.12 10.00 56.20 10.30 10.50 Mkt cap (USD m) 3,724 78,354 189,053 4,125 5,430 14,612 29,408 184,300 Turnover (USD m) 6 94 176 8 43 40 66 95 Decline from 2013 peak (%) (36) (25) (20) (35) (39) (33) (37) (33) 2014E Dividend yield (%) 5.8 2.6 4.7 8.3 3.0 4.2 5.6 6.6

BNP PARIBAS

14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

EXHIBIT 13: Stock valuations

--------- P/E --------2014E (x) China ComService China Life China Mobile Chongqing Rural Commercial Bank CNBM Great Wall Motor Minsheng Bank PetroChina Priced on 13 Feb 2014 Sources: Bloomberg; BNP Paribas estimates 7.8 13.3 9.3 3.5 4.8 8.7 3.8 7.6 2015E (x) 7.8 11.5 9.0 3.5 5.0 7.2 3.6 6.8 ---- EV/EBIDTA ---2014E (x) 3.0 2.8 7.1 5.5 4.1 2015E (x) 2.6 2.5 7.1 4.3 3.9 --------- P/BV -------2014E (x) 1.0 1.9 1.3 0.5 0.8 2.7 0.8 0.9 0.7 2.2 0.7 0.8 2015E (x) 0.9 1.7 1.2

For some companies in our basket, support to share price comes from high dividend yield. We point out that for, say, Petro China, a dividend yield of 5.5% has historically been a strong support level. It is trading at close to these levels of dividend yield now. Several other stocks notably China Mobile, China Life, Minsheng Bank, CRCB and China Comm Services are also trading at close to their all-time highest dividend yields.

EXHIBIT 14: China Mobile Div yield

(%) 7 6 5 4 3 2 1 0 + 1 SD Avg. - 1 SD

EXHIBIT 15: Petrochina Div yield

(%) 8 7 6 5 4 3 2 + 1 SD Avg. - 1 SD

Apr-05

Oct-08

Jul-10

Feb-04

May-09

Feb-11

Mar-08

Jun-06

Jan-07

Apr-12

Jun-13

Sep-04

Aug-07

Sep-11

Nov-12

Nov-05

Dec-09

Jan-14

Nov-08

Nov-09

Nov-10

Nov-11

Nov-12

Source: Factset

Source: Factset

EXHIBIT 16: China Life Div yield

(%) 3.0 2.5 2.0 1.5 1.0 - 1 SD 0.5 0.0 + 1 SD

EXHIBIT 17: Minsheng Bank Div yield

(%) 7 6 5 4 Avg. 3 2 1 0 + 1 SD Avg. - 1 SD

Feb-10

Feb-11

Feb-12

May-10

May-11

May-12

Feb-13

May-13

Aug-10

Aug-11

Aug-12

Aug-13

Nov-09

Nov-10

Nov-11

Nov-12

Oct-08 May-09

Dec-09 Jul-10

Feb-04

Sep-04 Apr-05

Mar-08

Jan-07 Aug-07

Feb-11 Sep-11

Nov-05 Jun-06

Apr-12

Nov-12 Jun-13

Source: Factset

Jan-14

Source: Factset

BNP PARIBAS

14 FEBRUARY 2014

Nov-13

Nov-13

Jul-09

Jul-10

Jul-11

Jul-12

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Jul-13

Source: Factset

Source: Factset

EXHIBIT 20: CRCB Div yield

EXHIBIT 18: Great Wall Motor Div yield

8
0 1 2 3 4 5 6 7 8 (%) (%) 0 1 2 3 4 5 6 7 8 9

Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13
+ 1 SD Avg. - 1 SD

China Strategy

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13
+ 1 SD Avg. - 1 SD

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

(%)

(%)

BNP PARIBAS
Source: Factset

Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13

Source: Factset

EXHIBIT 19: CNBM Div yield

EXHIBIT 21: China Comservice Div yield

Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13
Avg. + 1 SD - 1 SD

+ 1 SD Avg.

Manishi Raychaudhuri

- 1 SD

14 FEBRUARY 2014

14 FEBRUARY 2014
NEW INFORMATION 6 / DIVERSIFIED TELECOMMUNICATION CHINA

CHINA COMSERVICE
TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP

552 HK
HKD5.60 HKD4.17 +34.3% HKD5.60 UNCHANGED EPS 2013 (%) EPS 2014 (%) (3) (1) NEUTRAL NEGATIVE 3 0 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) (4) MARKET RECS POSITIVE 18

BUY
UNCHANGED

Riding the rising capex cycle

Negatives appear priced in CCSs share price has fallen more than 20% from its peak in August 2013 on weaker than expected 2013 earnings and negative sentiment towards the China telecom sector. The current price implies 2014E/15E P/Es of 7.8x and 6.8x, well below its five year average of 13.5x. Revenue momentum to kick in during 2014-15E With more clarity around 4G plans in China, we expect industry 4G capex to accelerate as operators execute on their 4G upgrade plans. Given the historically high contribution from China Telecom (41% of 1H13 revenue), we believe an accelerated 4G upgrade plan by China Telecom would be particularly significant for CCS. Upside potential from China Telecoms rising capex We recently raised our China Telecom (728 HK; BUY) capex estimate for 2014 by 18% to RMB97.5b, from RMB80b in 2013, as we expect it to accelerate its deployment to close the gap with China Mobile (941 HK; BUY). We believe CCS will be the key beneficiary of China Telecoms rising capex. Value has emerged; BUY with HKD5.60 TP We believe the recent share price decline largely reflects the weak 2013. With earnings growth set to return this year, we believe the current price offers a good entry point. Key downside risks to our call include delays in operators' 4G-related capex.

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)
Feb-13 5.95 5.45 4.95 4.45 (HKD) May-13

2012A 61,517 2,407 0.35 0.35 0.0 (4.4) 9.2 4.3 3.6 1.1 (46.9) 13.3
Aug-13

2013E 68,257 2,428 0.35 0.35 0.0 (0.6) 9.3 4.3 3.6 1.1 (45.6) 11.7
Nov-13

2014E 79,418 2,905 0.42 0.42 0.0 19.7 7.8 5.1 3.0 1.0 (44.2) 13.3

2015E 92,429 3,301 0.48 0.48 0.0 13.6 6.8 5.8 2.6 0.9 (43.0) 14.2
Feb-14 26 16 6 (4) (%)

China ComService

Rel to MSCI China

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

1 Month (6.7) (4.2)

3 Month (8.8) (7.8)

12 Month (14.4) (7.3) March, 2014 3,723 5.2 35

Revenue by customer y-y growth

(RMB m) 100,000 80,000 60,000 40,000 20,000 0 2011 2012 2013E 2014E 2015E 0 10 TIS (LHS) ACO (LHS) (y-y %) BPO (LHS) Revenue growth (RHS) 20

3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD) Issued shares (m)

China Telecom Corp. (53%) 5.73/4.11 28.0 6,926

Sources: Bloomberg consensus; BNP Paribas estimates

Sources: Bloomberg; BNP Paribas estimates

Alen Lin
alen.lin@asia.bnpparibas.com +852 2825 1801

Zoe Zhu
zoe.zhu@asia.bnpparibas.com +852 2825 1120

14 FEBRUARY 2014
NEW INFORMATION / INSURANCE CHINA 6

CHINA LIFE

2628 HK
TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP HKD26.50 HKD21.50 +23.3% HKD26.50 UNCHANGED EPS 2013 (%) EPS 2014 (%) (3.9) (0.1) NEUTRAL NEGATIVE 13 3 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 0.3 MARKET RECS POSITIVE 15

BUY
UNCHANGED

Long term beneficiary of urbanization

Favourable environment lifts insurers investment/product yield Under financial reforms to control shadow banking and manage funding costs, insurers have more opportunity to participate in highyield investment projects (infrastructure debt plans, ABS) and midterm bond market development benefits (long duration). This will improve profitability and lift product yields, attracting customers China Life to be affected less by potential regulation changes While the asset side is expected to improve, the regulator is planning to push marketization on the liability side. We expect the negative impact will be limited for China Life. Since price liberalization on traditional products in Aug 2013, insurers are still cautious on price competition. As China Life has a higher weight of VNB from traditional products it is less affected by scope expansion Long-term urbanization will drive growth While Chinas urbanization is in progress, we believe China Life will benefit on its large exposure in tier 2 and below cities. In 2012, China Life only had 6% GWP from BJ/SH/SZ while Ping An had 22%. BUY with TP of HKD26.5 We have a BUY and a TP of HKD26.5. The industry is experiencing an upward trend with limited negative impact from regulation changes. We expect China Life could deliver 2%, 3% VNB in 2013, 2014, respectively. Currently, China Life trades at 6.2x 2014E adjusted VNB, lower end of its five year range of 4.7x-40.4x. Key downside risk is a worse investment environment than we expect.

KEY STOCK DATA

YE Dec (RMB m) Operating Profit Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) EV growth (%) VNB growth (%) Recurring P/E (x) Dividend yield (%) Price/EV (x) Price/book (x) ROE (%)
Feb-13 May-13

2012A 7,931 11,061 0.39 0.39 0.0 (39.7) 14.2 3 42.9 0.8 1.4 2.1 5.4
Aug-13

2013E 30,721 27,313 0.97 0.97 0.0 146.9 9.7 2 17.4 1.7 1.2 2.1 12.1
Nov-13

2014E 41,030 35,860 1.27 1.27 0.0 31.3 10.7 3 13.2 2.3 1.1 1.9 14.7

2015E 47,824 41,608 1.47 1.47 0.0 16.0 12.1 5 11.4 2.6 1.0 1.7 15.4
Feb-14 5

25

0 (5)

20

(10) (15)

15 (HKD)

China Life

Rel to MSCI China

(20) (%)

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

1 Month (2.5) 0.0

3 Month 5.4 6.3

12 Month (12.2) (5.1) March 2014 78,327 123.1 32

Historical P/BV and VNB multiple

(x) 5 4 3 2 1 0 P/BV forward (LHS) VNBM (RHS) (x) 40 20

3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD; 12, Feb 2014) Issued shares (m)

China Life Insurance Group (68%) 25.70/17.50 30.3 LFC 41.8 28,265

Feb-10

Feb-11

Feb-12

May-10

May-11

May-12

Feb-13

May-13

Aug-10

Aug-11

Aug-12

Aug-13

Nov-10

Nov-11

Nov-12

Nov-13

Sources: Bloomberg consensus; BNP Paribas estimates

Sources: Bloomberg; BNP Paribas estimates

Ling Tang
ling.tang@asia.bnpparibas.com +852 2825 1135

10

14 FEBRUARY 2014
NEW INFORMATION 6 / WIRELESS TELECOMMUNICATION CHINA SERVICES

CHINA MOBILE

941 HK
HKD90.00 HKD73.85 +21.9% HKD90.00 -6.2% EPS 2013 (%) EPS 2014 (%) 2 8 NEUTRAL NEGATIVE 19 7 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 7 MARKET RECS POSITIVE 12

BUY
UNCHANGED

TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP

Staying ahead with 4G expansion

Taking the 4G leadership With TD-LTE licences issued in Dec 2013, China Mobile officially launched its 4G service in a number of markets in January. While China Telecom completed its initial equipment tender for 60k base stations, China Unicom has yet to announce the scale of its 4G trial; as they will require FDD-LTE licences before commercial launches, they will likely lag behind China Mobile by 6-12 months. 4G service will expand China Mobiles addressable market We think its 4G service will enable China Mobile to address the premium mobile broadband market it failed to during the 3G era. We expect its ARPU to flatten out in 2014, and start to grow in 2015. We estimate China Mobiles 4G coverage will exceed 300 cities by end2014, far larger than its competitors. Launching commercial services with 24 handsets certified We believe China Mobiles 4G handset readiness is better than the 3G cycle; our latest check (12 Feb) indicates that 24 smartphones have been officially certified by the MIIT including handsets from Huawei, ZTE, Apple, Samsung, Coolpad, LG, HTC and Sony. Attractive valuations with upside potential; BUY We believe China Mobile will be the top performer relative to its peers in the new multi-year cycle, it remains our top pick in the China telecoms sector. We believe it recent share price fall offers investors a good entry at 2014E/2015E PEs of 9.3x/9.0x. Key downside risks to our call include higher than expected capex in 2014E/15E.

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)
Feb-13 May-13

2012A 560,413 129,274 6.36 6.36 N/A 2.6 9.1 4.8 3.2 1.6 (51.6) 18.8
Aug-13

2013E 636,448 128,308 6.31 6.31 N/A (0.7) 9.1 4.8 3.0 1.5 (49.2) 16.9
Nov-13

2014E 673,724 124,731 6.14 6.14 N/A (2.8) 9.4 4.6 2.8 1.3 (47.3) 15.0

2015E 725,202 128,800 6.34 6.34 N/A 3.3 9.1 4.8 2.5 1.2 (49.0) 14.3
Feb-14

93 88 83 78 (HKD)

8 3 (2) (7) (%)

China Mobile

Rel to MSCI China

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m) 3m avg daily turnover (USD m)

1 Month (4.8) (3.3)

3 Month (7.9) (6.3)

12 Month (13.9) (6.4) March 2014 191,124 186.9 26

ARPU reversal on the horizon

Voice ARPU (RMB) 80 60 40 20 0 2010 2011 2012 2013E 2014E 2015E VAS ARPU VAS/overall ARPU (RHS) (%) 60

Free float (%) Major shareholder

China Mobile HK (BVI) Ltd (74%) 88.30/72.00 16.6 20,072

% %

12m high/low (HKD) 3m historic vol. (%)

40 20 0

ADR ticker

% %

ADR closing price (USD) Issued shares (m)

Sources: Bloomberg consensus; BNP Paribas estimates

Sources: China Mobile; BNP Paribas estimates

Alen Lin
alen.lin@asia.bnpparibas.com +852 2825 1801

Zoe Zhu
zoe.zhu@asia.bnpparibas.com +852 2825 1120

11

14 FEBRUARY 2014
NEW INFORMATION / BANKS CHINA 6

BUY
UNCHANGED

CHONGQING RURAL COMMERCIAL BANK HK

TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP HKD4.12 HKD3.44 +19.6% HKD4.12 UNCHANGED EPS 2013 (%) EPS 2014 (%) 0.2 0.5 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) (2.2)

3618
MARKET RECS POSITIVE NEUTRAL NEGATIVE 18 5 4

Beneficiary of urbanization
Primed to deliver above peers NPAT We value CRCB on an EVA model. Our TP of HKD4.12 implies a target 2014E P/BV of 0.7x and 20% upside potential. We expect it to deliver above-peer NPAT CAGR of 9.7% in the next three years compared with a sector average of 7.3%. Key beneficiary of favourable urbanization policies The launch of rural land circulation could increase loan demand and increase the collateral value of rural land use rights. We believe CRCB is a key beneficiary of favourable policies on the urbanization and industrialization of the rural area in Chongqing. Earnings outlook For 2013-15: We forecast 13.4%, 10.4%, 5.5% net income growth on asset growth of 19.6%, 11.1%, 7.6%. NIM contraction of 7bp, 12bp, 11bp with rising credit costs to 51bp, 57bp, 56bp. We forecast ROE of 17.8%, 17.4%, 16.3%, and ROA of 1.33%, 1.27%, 1.23%. A dominant player in Chongqing A dominant player with the broadest branch network in rural areas, the bank has the lowest LDR among all H-share banks, making it less vulnerable to interest rate liberalization. Large excess provisions also cushion any potential asset quality deterioration. Key downside risk is asset quality on LGFP loans.

KEY STOCK DATA

YE Dec (RMB m) Operating Profit Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) Price/book (x) ROE (%) ROA (%)
Feb-13 5.06 4.56 4.06 3.56 3.06 2.56 (HKD) Chongqing Rural Commercial Bank (21) (31) (%) (1) (11) May-13

2012A 7,067 5,361 0.58 0.58 0.0 26.2 4.7 6.3 0.8 17.9 1.38
Aug-13

2013E 8,249 6,077 0.65 0.65 0.0 13.4 4.1 7.2 0.7 17.8 1.33
Nov-13

2014E 9,073 6,710 0.72 0.72 0.0 10.4 3.7 7.9 0.6 17.4 1.27

2015E 9,553 7,078 0.76 0.76 0.0 5.5 3.5 8.3 0.5 16.3 1.23
Feb-14

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

1 Month (2.0) 0.5

3 Month (9.5) (8.6)

12 Month (23.6) (16.4) March 2014 4,124 7.4 16

Key financials
2010 NPAT (RMB m) NPAT Growth (y-y %) ROE (%) ROA (%) P/E (x) P/BV (x) 3,064 62.3 19.3 1.26 6.4 1.1 2011 4,247 38.6 16.9 1.35 5.7 0.9 2012 5,361 26.2 17.9 1.38 4.6 0.8 2013E 6,077 13.4 17.8 1.28 4.0 0.7 2014E 6,710 10.4 17.4 1.22 3.6 0.6 2015E 7,078 5.5 16.3 1.18 3.5 0.5

3m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD) Issued shares (m)

MOF and Huijin (71%) 4.66/3.03 25.1 9,300

Sources: Bloomberg consensus; BNP Paribas estimates Sources: CRCB; CRCB; BNP Paribas estimates

Judy Zhang
judy.zhang@asia.bnpparibas.com +852 2825 1810

12

14 FEBRUARY 2014
NEW INFORMATION 6 / BUILDING MATERIALS CHINA

CNBM

3323 HK
TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP HKD10.00 HKD7.80 +28.2% HKD10.00 UNCHANGED EPS 2013 (%) EPS 2014 (%) 6.8 1.4 NEUTRAL NEGATIVE 8 8 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 10.7 MARKET RECS POSITIVE 17

BUY
UNCHANGED

Quality laggard
Beneficiary of policy catalysts in 2014 The effective day of tighter emission standards for new lines and the cancellation of PC 32.5 will be from March 1 and July 1, respectively. These policies will delay capacity expansion, increase the bargaining power of top cement companies and speed up the closure of grinding stations. CNBM can accommodate product mix changes easily. Company specific catalysts: deleveraging and cost reductions Management has stressed two strategies of deleveraging and cost cutting since 2H13. We note net gearing improved to 331% in Sep-13 from 334% in Jun-13. We expect CNBMs free cash flow to turn positive from negative in 2014 after years of aggressive M&As. 2013 earnings are solid with consensus revising up We believe CNBMs 4Q13 GP/tonne to be around RMB90-93 which is close to our estimated RMB92/tonne. We maintain our 2013E net earnings at RMB6b, while noting Bloomberg consensus estimates being revised up recently. CNBM is a quality laggard in the cement sector Investor concern over potential share placement at 1x PB made CNBM a laggard to Anhui Conch. However, we see upside: 1) Trades at 0.8x 2014E PB; 2) management will only do the placement when its share price is consistently up for shareholders benefit, and 3) CNMB has one of the highest betas to policy catalysts. BUY. Risks include higher gearing, higher costs and worse GP/tonne than expected.

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)
Feb-13 13 11 9 7 5 (HKD) May-13

2012A 87,218 5,580 1.03 1.03 0.0 (47.8) 5.9 2.5 7.2 1.1 300.5 19.6
Aug-13

2013E 118,131 6,094 1.13 1.13 0.0 9.2 5.4 2.8 7.4 0.9 299.7 18.4
Nov-13

2014E 126,104 6,843 1.27 1.27 0.0 12.3 4.8 3.1 7.1 0.8 253.6 17.7

2015E 127,451 6,633 1.23 1.23 0.0 (3.1) 5.0 3.0 7.1 0.7 214.6 15.0
Feb-14 0 (10) (20) (30) (40)

CNBM

Rel to MSCI China

(50) (%)

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m) 3m avg daily turnover (USD m)

1 Month 2.0 4.4

3 Month 6.0 6.9

12 Month (36.0) (28.9) March 2014 5,428 39.0 46

Average Conch-CNBM PB Gap was 0.67x but now at 1.36x

(x) 10 8 6 4 2 0 (2) (4) Mar-06 P/BV premium: Conch - CNBM Conch P/BV CNBM P/BV Average P/BV premium

Free float (%) Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD) Issued shares (m)

CNBM Group (59%) 12.46/6.19 31.9 5,399

Sources: Bloomberg consensus; BNP Paribas estimates

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Mar-13

Sources: Bloomberg; BNP Paribas estimates

Rachel Cheung
rachel.cheung@asia.bnpparibas.com +852 2825 1824

13

14 FEBRUARY 2014
NEW INFORMATION 7 / AUTOMOBILES & COMPONENTS CHINA

GREAT WALL MOTOR

TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP

2333 HK
HKD56.20 HKD37.25 +50.9% HKD56.20 UNCHANGED EPS 2013 (%) EPS 2014 (%) 2.7 3.0 NEUTRAL NEGATIVE 7 4 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 15.8 MARKET RECS POSITIVE 30

BUY
UNCHANGED

Disappointment priced in
Delayed H8 launch disappointment is priced in The stock declined 30% since its peak last October (vs. the HSCEI down 17%). In January, GWM disappointed with the H8 launch delay. We believe this disappointment is priced in and that the market believes the H6 is capable of meeting the RMB10.1b Bloomberg consensus earnings forecast in 2014 (our estimate: RMB10.4b). Still positive on the PV sector and SUV theme We maintain our positive China PV sector view in 2014, with strong January sales supporting this. We forecast the China SUV segment to grow 25% y-y in 2014, vs. 15-20% for the luxury segment. SUV and luxury are the two major investment themes in 2014. H6 will still be very competitive until 2015 The market is concerned over H6 margin pressure given the increase in new entrants. However, we believe the threat is minimal in 2014 as most JVs will focus on A-class sedans with their A-SUVs out at yearend 2014 or in 2015. We also expect GWMs recently-hired ex-BMW designer to help lift the brand image of Haval SUVs. We view GWM as the best SUV play: BUY We still believe GWM is the best SUV play due to its highest SUV exposure and H6 competitiveness. GWM trades at 8.5x FY14E P/E; we have a BUY with an HKD56.2 PE-based TP. We expect continued strong growth of H6 sales and any breakthrough in the H8 to be positive catalysts. Risks include weaker-than-expected SUV sales and a further delay in the H8 re-launch.

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)
Feb-13 52 47 42 37 32 27 (HKD) Great Wall Motor Rel to MSCI China 30 10 (10) (%) May-13

2012A 41,565 5,692 1.87 1.87 0.0 53.7 15.6 2.0 10.2 4.5 (31.8) 32.0
Aug-13

2013E 55,133 8,446 2.78 2.78 0.0 48.4 10.5 2.9 7.2 3.4 (38.3) 37.1
Nov-13

2014E 67,259 10,386 3.41 3.41 0.0 23.0 8.5 3.5 5.5 2.7 (52.5) 35.4

2015E 77,281 12,418 4.08 4.08 0.0 19.6 7.1 4.2 4.2 2.1 (59.6) 33.3
Feb-14 70 50

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m) 3m avg daily turnover (USD m) Free float (%)

1 Month (5.1) (2.6)

3 Month (13.8) (12.9)

12 Month 20.2 27.3 March 2014 14,607 65.0 44

SUV sales volume growth will be higher than sedan in China

(%) 100 50 0 Sedan SUV

Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD)

Baoding Innovation Great Wall Asset Management Company Limited (56%) 50.75/25.25 46.5 3,042

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

Issued shares (m)

Sources: Bloomberg consensus; BNP Paribas estimates

Sources: Bloomberg consensus; BNP Paribas estimates

Tina Li, CFA

tina.li@asia.bnpparibas.com +852 2825 1897

14

14 FEBRUARY 2014
NEW INFORMATION / BANKS CHINA 6

MINSHENG BANK 'H'

TARGET PRICE CLOSE UP/DOWNSIDE PRIOR TP CHANGE IN TP

1988 HK
HKD10.30 HKD7.87 +30.9% HKD10.30 EPS 2013 (%) EPS 2014 (%) 3.6 1.2 NEUTRAL NEGATIVE 7 9 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 12.2 MARKET RECS POSITIVE 21

BUY
UNCHANGED

UNCHANGED

Minsheng: a pure commercial bank

A market-driven bank with the right strategy We value Minsheng on an EVA model. Our TP of HKD10.3 implies a target 2014E P/BV of 1.0x and 31% upside potential. We expect it to deliver above-peer NPAT CAGR of 10.1% in the next three years compared with a sector average of 7.3%. We see multiple catalysts for Minsheng shares Catalysts: We believe it is a key beneficiary of an economic recovery in China; the potential introduction of preferred shares; better managed interbank assets growth; its retail franchise improvement as evidenced by rising retail deposits contribution and its highest retail loan contribution to loan mix in 1H13; and developments on the strategic partnership with Alibaba. (1688 HK; Not rated). Earnings outlook Our 2013-15 forecasts: 13.1%, 10.5%, and 6.8% net income growth on asset growth of 7.9%, 5.9%, and 4.8%. 33bp, 7bp, and 7bp NIM contraction in 2013-15 with rising credit cost to 73bp, 80bp and 85bp. ROE of 23.6%, 21.7% and 19.6%, ROA of 1.3%, 1.34% and 1.35%. A pure private bank: deserves a market premium We believe Minsheng, a market-driven private bank with a good longterm strategy, deserves a valuation premium to its peers. We believe the banks corporate banking business reforms and focus on micro lending are the correct strategies for long-term growth, making it less vulnerable to interest rate liberalization and bank disintermediation. Key risk is asset quality on LGFP loans.

KEY STOCK DATA

YE Dec (RMB m) Operating Profit Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) Price/book (x) ROE (%) ROA (%)
Feb-13 12 10 8 6 (HKD) May-13

2012A 50,652 37,563 1.34 1.34 0.0 28.6 4.6 2.4 1.1 25.7 1.41
Aug-13

2013E 57,203 42,468 1.50 1.50 0.0 11.4 4.1 4.9 0.9 23.6 1.30
Nov-13

2014E 63,071 46,906 1.64 1.64 0.0 9.3 3.8 5.3 0.8 21.7 1.34

2015E 67,300 50,104 1.73 1.73 0.0 5.7 3.6 5.6 0.6 19.6 1.35
Feb-14 2 (8) (18) (28) (38) (%)

Minsheng Bank 'H'

Rel to MSCI China

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m) 3m avg daily turnover (USD m) Free float (%)

1 Month (2.6) (0.1)

3 Month (6.9) (6.0)

12 Month (26.6) (19.5) March 2014 28,774 52.9 93

Key financials
2010 NPAT (RMB m) NPAT Growth (y-y %) ROE (%) ROA (%) P/E (x) P/BV (x) 17,581 45.2 18.3 1.08 9.2 1.6 2011 27,920 58.8 23.9 1.38 5.7 1.3 2012 37,563 34.5 25.7 1.38 4.5 1.1 2013E 42,468 13.1 23.6 1.27 4.0 0.9 2014E 46,908 10.5 21.7 1.31 3.7 0.8 2015E 50,104 6.8 19.6 1.33 3.5 0.6

Major shareholder 12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD) Issued shares (m)

New Hope Group (7%) 11.34/7.21 26.5 28,366

Sources: Bloomberg consensus; BNP Paribas estimates

Sources: Minsheng Bank 'H'; BNP Paribas estimates

Judy Zhang
judy.zhang@asia.bnpparibas.com +852 2825 1810

15

14 FEBRUARY 2014
NEW INFORMATION / OIL & GAS CHINA 6

PETROCHINA
CLOSE PRIOR TP

857 HK
TARGET PRICE HKD10.50 HKD7.81 +34.4% HKD10.50 UNCHANGED EPS 2013 (%) EPS 2014 (%) (8.2) 9.4 NEUTRAL NEGATIVE 9 4 HOW WE DIFFER FROM CONSENSUS TARGET PRICE (%) 4.0 MARKET RECS POSITIVE 20 UP/DOWNSIDE

BUY
UNCHANGED

CHANGE IN TP

Cloudy outlook to pass

Three key catalysts this year We identify three potential positive catalysts: 1) Lower capex guidance during FY13 results in late-March 2014; 2) next round of gas price hikes of around RMB0.30/cum, potentially during mid-2014; and 3) the resolution of the investigation of executives, which we hope will occur later this year. Strong earnings outlook We forecast strong earnings growth in 2014 based on 1) stronger E&P earnings due to higher well-head prices and volume increase, 2) reduced refining losses as refining margins improve due to higher Euro IV gasoline prices, and 3) improving natural gas division earnings as a further gas price hike should reduce import losses. Good news not priced in PetroChina is currently trading at 0.9x 2014E PBV, a level last seen during the financial crisis, which we believe is unjustified given the improving regulatory outlook. PetroChinas share price has fallen to pre-gas reform levels, indicating that the market does not believe future gas price hikes will take place, which we believe is too bearish. BUY with TP of HKD10.50 Our TP of HKD10.50 is based on a target EV/CE multiple of 1.3x that assumes a ROCE of 9.4% and WACC of 8%. Key downside risks are a sharp fall in crude prices or a failure to increase natural gas prices.

KEY STOCK DATA

YE Dec (RMB m) Revenue Rec. net profit Recurring EPS (RMB) Prior rec. EPS (RMB) Chg. In EPS est. (%) EPS growth (%) Recurring P/E (x) Dividend yield (%) EV/EBITDA (x) Price/book (x) Net debt/Equity (%) ROE (%)
Feb-13 12 11 10 9 8 7 (HKD) PetroChina Rel to MSCI China (19) (29) (%) May-13

2012A

2013E

2014E

2015E

2,195,296 2,462,978 2,643,576 2,749,531 115,326 0.63 0.63 0.0 (13.3) 9.7 4.6 4.6 1.0 33.8 11.2
Aug-13

114,828 0.63 0.63 0.0 (0.4) 9.7 5.3 4.4 1.0 39.7 10.4

146,388 0.80 0.80 0.0 27.5 7.6 5.9 4.1 0.9 38.3 12.4

164,729 0.90 0.90 0.0 12.5 6.8 6.6 3.9 0.8 38.2 13.0
Feb-14

Nov-13

1 (9)

Share price performance Absolute (%) Relative to country (%) Next results Mkt cap (USD m)

1 Month (2.7) (0.3)

3 Month (8.1) (7.2)

12 Month (26.2) (19.1) March 2014 184,237 93.0 14

PetroChina forward P/BV band

(HKD) 20 16 12 8 4 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Sources: Bloomberg; BNP Paribas estimates

3m avg daily turnover (USD m) Free float (%) Major shareholder

CNPC (86%) 10.88/7.33 20.0 PTR US 101.95 183,021

2.0x 1.7x 1.3x 1.0x

12m high/low (HKD) 3m historic vol. (%) ADR ticker ADR closing price (USD; 11 Feb 2014) Issued shares (m)

Sources: Bloomberg consensus; BNP Paribas estimates

Yong Liang Por

yongliang.por@asia.bnpparibas.com +852 28251877

16

China Strategy

Manishi Raychaudhuri

Disclaimers and Disclosures

APPENDIX DISCLAIMERS AND DISCLOSURES APPLICABLE TO NON-US BROKER-DEALER(S) (BNP Paribas Securities India Pvt Ltd) ANALYST(S) CERTIFICATION
Manishi Raychaudhuri, BNP Paribas Securities India Pvt Ltd, +91 22 33704346, manishi.raychaudhuri@asia.bnpparibas.com. Gautam Mehta, BNP Paribas Securities India Pvt Ltd, +91 22 33704357, gautam.mehta@asia.bnpparibas.com. Rajan Jain, BNP Paribas Securities India Pvt Ltd, +91 22 6176 5624, rajan.jain@asia.bnpparibas.com. The analyst(s) or strategist(s) herein each referred to as analyst(s) named in this report certify(ies) that (i) all views expressed in this report accurately reflect the personal view of the analyst(s) with regard to any and all of the subject securities, companies or issuers mentioned in this report; and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the research analyst herein. Analysts mentioned in this disclaimer are employed by a non-US affiliate of BNP Paribas Securities Corp., and are not registered/ qualified pursuant to NYSE and/or FINRA regulations.

"BNP Paribas is the marketing name for the global banking and markets business of BNP Paribas Group. No portion of this report was prepared by BNP Paribas Securities Corp (US) personnel, and it is considered Third-Party Affiliate research under NASD Rule 2711. The following disclosures relate to relationships between companies covered in this research report and the BNP entity identified on the cover of this report, BNP Securities Corp., and other entities within the BNP Paribas Group (collectively, "BNP Paribas"). The disclosure column in the following table lists the important disclosures applicable to each company that has been rated and/or recommended in this report:
Company N.A Ticker N/A Disclosure (as applicable) N/A

IMPORTANT DISCLOSURES REQUIRED IN THE UNITED STATES BY FINRA RULES AND OTHER JURISDICTIONS

BNP Paribas represents that: 1. Within the past year, it has managed or co-managed a public offering for this company, for which it received fees. 2. It had an investment banking relationship with this company in the last 12 months. 3. It received compensation for investment banking services from this company in the last 12 months. 4. It expects to receive or intends to seek compensation for investment banking services from the subject company/ies in the next 3 months. 5. It beneficially owns 1% or more of any class of common equity securities of the subject company. 6. It makes a market in securities in respect of this company. 7. The analyst(s) or an individual who assisted in the preparation of this report (or a member of his/her household) has a financial interest position in securities issued by this company. The financial interest is in the common stock of the subject company, unless otherwise noted. 8. The analyst (or a member of his/her household) is an officer, director, or advisory board member of this company or has received compensation from the company.

IMPORTANT DISCLOSURES REQUIRED IN KOREA

The disclosure column in the following table lists the important disclosures applicable to each Korea listed company that has been rated and/or recommended in this report: Company N/A Ticker N/A Price (as of 14-Feb-2014 closing price) N/A Interest N/A

1. 2. 3. 4. 5. 6. 7. 8. 9.

The performance of obligations of the Company is directly or indirectly guaranteed by BNP Paribas Securities Korea Co. Ltd (BNPPSK) by means of payment guarantees, endorsements, and provision of collaterals and/or taking over the obligations. BNPPSK owns 1/100 or more of the total outstanding shares issued by the Company. The Company is an affiliate of BNPPSK as prescribed by Item 3, Article 2 of the Monopoly Regulation and Fair Trade Act. BNPPSK is the financial advisory agent of the Company for the Merger and Acquisition transaction or of the Target Company whereby the size of the transaction does not exceed 5/100 of the total asset of the Company or the total number of outstanding shares. BNPPSK has taken financial advisory service regarding listing to the Company within the past 1 year. With regards to the tender offer initiated by the Company based on Item 2, Article 133 of the Financial Investment Services and Capital Market Act, BNPPSK acts in the capacity of the agent for the tender offer designated either by the Company or by the target company, provided that this provision shall apply only where tender offer has not expired. the listed company which issued the stocks in question in case where 40 days has not passed since the new shares were listed from the date of entering into arrangement for public offering or underwriting-related agreement for issuance of stocks The Company is recognized as having considerable interests with BNPPSK. The analyst or his/her spouse owns (including delivery claims of marketable securities based on legal regulations and trading and misc. contracts) the following securities or rights (hereinafter referred to as Securities, etc. in this Article) regardless of whose name is used in the trading. 1) Stocks, bond with stock certificate, and certificate of pre-emptive rights issued by the Company whose securities dealings are being solicited. 2) Stock options of the Company whose securities dealings are being solicited. 3) Individual stock future, stock option, and warrants that use the stocks specified in Item 1) as underlying.

This report was produced by BNP Paribas Securities India Pvt Ltd, member company(ies) of the BNP Paribas Group. This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set forth herein. This report does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Customers are advised to use the information contained herein as just one of many inputs and considerations prior to engaging in any trading activity. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. This report is not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the

GENERAL DISCLAIMER

17

BNP PARIBAS

14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

recipients own independent verification, or taken in substitution for the exercise of judgment by the recipient. Additionally, the products mentioned in this report may not be available for sale in certain jurisdictions. As an investment bank with a wide range of activities, BNP Paribas may face conflicts of interest, which are resolved under applicable legal provisions and internal guidelines. You should be aware, however, that BNP Paribas may engage in transactions in a manner inconsistent with the views expressed in this document, either for its own account or for the account of its clients. Australia: This report is being distributed in Australia by BNP Paribas Sydney Branch, registered in Australia as ABN 23 000 000 117 at 60 Castlereagh Street Sydney NSW 2000. 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INB/INF231474835, INB/INF011474831). Indonesia: This report is being distributed by PT BNP Paribas Securities Indonesia and is delivered by licensed employee(s) to its clients. PT BNP Paribas Securities Indonesia, having its registered office at Menara BCA, 35th Floor, Grand Indonesia, Jl. M.H.Thamrin No.1, Jakarta, 10310, Indonesia, is a fully subsidiaries company of BNP Paribas SA and is licensed under Capital Market Law No. 8 of 1995 and the holder of broker-dealer and underwriter licenses issued by the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK). PT BNP Paribas Securities Indonesia is also a member of Indonesia Stock Exchange. Neither this research publication nor any copy hereof may be distributed in Indonesia or to any Indonesian citizens except in compliance with applicable Indonesian capital market laws and regulations. This research publication is not an offer of securities in Indonesia. Some of the securities referred to in this research publication have not been registered with the Capital Market and Financial Institutions Supervisory Agency (BAPEPAM-LK) pursuant to relevant capital market laws and regulations, and may not be offered or sold within the territory of the Republic of Indonesia or to Indonesian citizens through a public offering or in circumstance which constitute an offer within the meaning of Indonesian capital market laws and regulations. Japan: This report is being distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited or by a subsidiary or affiliate of BNP Paribas not registered as a financial instruments firm in Japan, to certain financial institutions defined by article 17-3, item 1 of the Financial Instruments and Exchange Law Enforcement Order. BNP Paribas Securities (Japan) Limited is a financial instruments firm registered according to the Financial Instruments and Exchange Law of Japan and a member of the Japan Securities Dealers Association, the Financial Futures Association of Japan and the Type II Financial Instruments Firms Association. BNP Paribas Securities (Japan) Limited accepts responsibility for the content of a report prepared by another non-Japan affiliate only when distributed to Japanese based firms by BNP Paribas Securities (Japan) Limited. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Malaysia: This report is issued and distributed by BNP Paribas Capital (Malaysia) Sdn Bhd. The views and opinions in this research report are our own as of the date hereof and are subject to change. BNP Paribas Capital (Malaysia) Sdn Bhd has no obligation to update its opinion or the information in this research report. This publication is strictly confidential and is for private circulation only to clients of BNP Paribas Capital (Malaysia) Sdn Bhd. This publication is being provided to you strictly on the basis that it will remain confidential. No part of this material may be (i) copied, photocopied, duplicated, stored or reproduced in any form by any means or (ii) redistributed or passed on, directly or indirectly, to any other person in whole or in part, for any purpose without the prior written consent of BNP Paribas Capital (Malaysia) Sdn Bhd. Philippines: This report is being distributed in the Philippines by BNP Paribas Manila Branch, an Offshore Banking Unit (OBU) of BNP Paribas whose head office is in Paris, France. BNP Paribas Manila OBU is registered as an offshore banking unit under Presidential Decree No. 1034 (PD 1034), and regulated by the Bangko Sentral ng Pilipinas. This report is being distributed in the Philippines to qualified clients of OBUs as allowed under PD 1034, and is qualified in its entirety to the products and services allowed under PD 1034. Singapore: This report is distributed in Singapore by BNP Paribas Securities (Singapore) Pte Ltd ("BNPPSSL") and may be distributed in Singapore only to an Accredited or Institutional Investor, each as defined under the Financial Advisers Regulations ("FAR") and the Securities and Futures Act (Chapter 289) of Singapore, as amended from time to time. In relation to the distribution to such categories of investors, BNPPSSL and its representatives are exempted under Regulation 35 of the FAR from the requirements in Section 36 of the Financial Advisers Act of Singapore, regarding the disclosure of certain interests in, or certain interests in the acquisition or disposal of, securities referred to in this report. For Institutional and Accredited Investors in Singapore, please contact BNP Paribas Securities (Singapore) Ptd Ltd for all matters and queries relating to this report. South Africa: In South Africa, BNP Paribas Cadiz Securities (Pty) Ltd and BNP Paribas Cadiz Stock Broking (Pty) Ltd (hereinafter referred to as BNPP Cadiz) are licensed members of Johannesburg Stock Exchange and are authorised Financial Services Providers and subject to regulation by the Financial Services Board. BNPP Cadiz does not expressly or by implication represent, recommend or propose that the financial products referred to in this report are appropriate to the particular investment objectives, financial situation or particular needs of the recipient. Switzerland: This report is intended solely for customers who are Qualified Investors as defined in article 10 paragraphs 3 and 4 of the Swiss Federal Act on Collective Investment Schemes of 23 June 2006 (CISA) and the relevant provisions of the Swiss Federal Ordinance on Collective Investment Schemes of 22 November 2006 (CISO). Qualified Investors includes, among others, regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes, regulated insurance companies as well as pension funds and companies with professional treasury operations. This document may not be suitable for customers who are not Qualified Investors and should only be used and passed on to Qualified Investors. For specification purposes, a Swiss Corporate Customer is a Client which is a corporate entity, incorporated and existing under the laws of Switzerland and which qualifies as Qualified Investor as defined above." BNP Paribas (Suisse) SA is authorised as bank and as securities dealer by the Swiss Federal Market Supervisory Authority FINMA. BNP Paribas (Suisse) SA is registered at the Geneva commercial register under No. CH-270-3000542-1. BNP Paribas (Suisse) SA is incorporated in Switzerland with limited liability. Registered Office: 2 place de Hollande, CH-1204 Geneva. Taiwan: Information on securities that trade in Taiwan is distributed by BNP Paribas Securities (Taiwan) Co., Ltd. Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decision. Information on securities that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities. BNP Paribas Securities (Taiwan) Co., Ltd. may not execute transactions for clients in these securities. This publication may not be distributed to the public media or quoted or used by the public media without the express written consent of BNP Paribas.

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14 FEBRUARY 2014

China Strategy

Manishi Raychaudhuri

Thailand: Research relating to Thailand and Thailand based issuers is produced pursuant to an arrangement between BNP PARIBAS (BNPP) and Finansia Syrus Securities Public Company Limited (FSS). The International Investment Advisory Team at FSS prepares and distributes research under the brand name BNP PARIBAS/FSS. FSS is not an affiliate of BNPP. FSS also publishes a different research product under the brand name FINANSIA SYRUS, which is prepared by research analysts who are not part of the International Investment Advisory Team and who may cover the same securities, issuers, or industries that are the subject of this report. The ratings, recommendations, and views expressed in this report may differ from the ratings, recommendations, and views expressed by other research analysts or research teams employed by FSS. This report is being distributed outside Thailand by members of BNP Paribas. Turkey: This report is being distributed in Turkey by TEB Investment (TEB YATIRIM MENKUL DEGERLER A.S., Teb Kampus D Blok Saray Mah. Kucuksu Cad. Sokullu Sok., No:7 34768 Umraniye, Istanbul, Turkey, Trade register number: 358354, www.tebyatirim.com.tr) and outside Turkey jointly by TEB Investment and BNP Paribas. Notice Published in accordance with Communiqu Regarding the Principles on Investment Consultancy Activities and the Investment Consultancy Institutions Series: V, No: 55 issued by the Capital Markets Board. The investment related information, commentary and recommendations contained herein do not constitute investment consultancy services. Investment consultancy services are provided in accordance with investment consultancy agreements executed between investors and brokerage companies or portfolio management companies or non-deposit accepting banks. The commentary and recommendations contained herein are based on the personal views of the persons who have made such commentary and recommendations. These views may not conform to your financial standing or to your risk and return preferences. Therefore, investment decisions based solely on the information provided herein may fail to produce results in accordance with your expectations. United States: This report may be distributed in the United States only to U.S. Persons who are major U.S. institutional investors (as such term is defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major U.S. institutional investor. U.S persons who wish to effect transactions in securities discussed herein must do so through BNP Paribas Securities Corp., a USregistered broker dealer and member of FINRA, SIPC, NFA, NYSE and other principal exchanges. Certain countries within the European Economic Area: This document may only be distributed in the United Kingdom to eligible counterparties and professional clients and is not intended for, and should not be circulated to, retail clients (as such terms are defined in the Markets in Financial Instruments Directive 2004/39/EC (MiFID)). This document will have been approved for publication and distribution in the United Kingdom by BNP Paribas London Branch, a branch of BNP Paribas SA whose head office is in Paris, France. BNP Paribas SA is incorporated in France with limited liability with its registered office at 16 boulevard des Italiens, 75009 Paris. BNP Paribas London Branch (registered office: 10 Harewood Avenue, London NW1 6AA; tel: [44 20] 7595 2000; fax: [44 20] 7595 2555) is authorised by the Autorit de Contrle Prudentiel and the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority, and regulation by the Financial Conduct Authority are available from us on request.This report has been approved for publication in France by BNP Paribas, a credit institution licensed as an investment services provider by the Autorit de Contrle Prudentiel whose head office is 16, Boulevard des Italiens 75009 Paris, France. This report is being distributed in Germany either by BNP Paribas London Branch or by BNP Paribas Niederlassung Frankfurt am Main, regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht (BaFin). Other Jurisdictions: The distribution of this report in other jurisdictions or to residents of other jurisdictions may also be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions. This report is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. All research reports are disseminated and available to all clients simultaneously through our internal client websites. For all research available on a particular stock, please contact the relevant BNP Paribas research team or the author(s) of this report. Additional Disclosures Target price history, stock price charts, valuation and risk details, and equity rating histories applicable to each company rated in this report is available in our most recently published reports available on our website: http://eqresearch.bnpparibas.com, or you can contact the analyst named on the front of this note or your BNP Paribas representative. All share prices are as at market close on 14 February 2014 unless otherwise stated.

RECOMMENDATION STRUCTURE
Stock Ratings Stock ratings are based on absolute upside or downside, which we define as (target price* - current price) / current price. BUY (B). The upside is 10% or more. HOLD (H). The upside or downside is less than 10%. REDUCE (R). The downside is 10% or more. Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.
* In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Industry Recommendations Improving ( ): The analyst expects the fundamental conditions of the sector to be positive over the next 12 months. Stable (previously known as Neutral) ( ): The analyst expects the fundamental conditions of the sector to be maintained over the next 12 months. Deteriorating ( ): The analyst expects the fundamental conditions of the sector to be negative over the next 12 months. Country (Strategy) Recommendations Overweight (O). Over the next 12 months, the analyst expects the market to score positively on two or more of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Neutral (N). Over the next 12 months, the analyst expects the market to score positively on one of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity. Underweight (U). Over the next 12 months, the analyst does not expect the market to score positively on any of the criteria used to determine market recommendations: index returns relative to the regional benchmark, index sharpe ratio relative to the regional benchmark and index returns relative to the market cost of equity.

RATING DISTRIBUTION (as at 14 February 2014)

Total BNP Paribas coverage universe Buy Hold Reduce 656 338 210 108 Investment Banking Relationship Buy Hold Reduce (%) 4.7 3.3 2.8

Should you require additional information concerning this report please contact the relevant BNP Paribas research team or the author(s) of this report. 2014 BNP Paribas Group

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BNP PARIBAS

14 FEBRUARY 2014

HONG KONG
BNP Paribas Securities (Asia) Ltd 63/F, Two International Finance Centre 8 Finance Street, Central Hong Kong SAR China Tel (852) 2825 1888 Fax (852) 2845 9411

BEIJING
BNP Paribas (China) Ltd Beijing Branch Room 2001, 20/F China World Tower 1 Jianguomenwai Avenue Beijing, China Tel: +86-10-6535 0888 Fax: +86-10-6535 0883

BNP Paribas Equities (Asia) Ltd Shanghai Representative Office Room 2630, 26/F Shanghai World Financial Center 100 Century Avenue Shanghai 200120, China Tel (86 21) 6096 9000 Fax (86 21) 6096 9018

SHANGHAI

BANGKOK
(In cooperation with BNP Paribas) FSS International Investment Advisory Securities Co., Ltd 990 Abdulrahim Place, 12/F, Room 1210 Rama IV Road, Bangrak Bangkok 10500 Thailand Tel (66 2) 611 3500 Fax (66 2) 611 3551

JAKARTA
PT BNP Paribas Securities Indonesia Grand Indonesia, Menara BCA, 35/F JI. M.H. Thamrin No. 1 Jakarta 10310 Indonesia Tel (62 21) 2358 6586 Fax (62 21) 2358 7587

BNP Paribas Capital (Malaysia) Sdn Bhd Vista Tower, Level 48C The Intermark, 182 Jalan Tun Razak 50400 Kuala Lumpur Malaysia Tel (60 3) 2179 6222 Fax (60 3) 2179 6226

KUALA LUMPUR

BNP Paribas Securities India Pvt Ltd BNP Paribas House 1 North Avenue, Maker Maxity Bandra Kurla Complex Bandra East Mumbai 400 051 Tel (91 22) 3370 4000 Fax (91 22) 3370 4386

MUMBAI

SEOUL
BNP Paribas Securities Korea Co Ltd 22/F, Taepyeongno Building 310 Taepyeongno 2-ga Jung-gu, Seoul 100-767 Korea Tel (82 2) 2125 0500 Fax (82 2) 2125 0593

SINGAPORE
BNP Paribas Securities (Singapore) Pte Ltd (Co. Reg. No. 199801966C) 10 Collyer Quay 34/F Ocean Financial Centre Singapore 049315 Tel (65) 6210 1288 Fax (65) 6210 1980

TAIPEI
BNP Paribas Securities (Taiwan) Co Ltd 72/ F, Taipei 101 No. 7 Xin Yi Road, Sec. 5 Taipei, Taiwan Tel (886 2) 8729 7000 Fax (886 2) 8101 2168

TOKYO
BNP Paribas Securities (Japan) Ltd GranTokyo North Tower 1-9-1 Marunouchi, Chiyoda-Ku Tokyo 100-6740 Japan Tel (81 3) 6377 2000 Fax (81 3) 5218 5970

CAPE TOWN
BNP Paribas Cadiz Securities (Pty) Ltd Ground floor, Fernwood House The Oval, 1 Oakdale Road, Newlands Cape Town South Africa 7700 Tel (27 21) 657 8300 Fax (27 21) 657 8301

ISTANBUL
TEB Investment (A JV between TEB Bank and BNP Paribas) TEB Kampus D7 Saray Mahallesi Sokullu Sok No 7 Umraniye 34768 Istanbul Turkey Tel: (90 216) 636 44 44 Fax: (90 216) 631 44 00

NEW YORK
BNP Paribas The Equitable Tower 787 Seventh Avenue New York NY 10019, USA Tel (1 212) 841 3800 Fax (1 212) 841 3810

BASEL
BNP Paribas Aeschengraben 26 CH 4002 Basel Switzerland Tel (41 61) 276 5555 Fax (41 61) 276 5514

FRANKFURT
BNP Paribas Mainzer Landstrasse 16 60325 Frankfurt Germany Tel (49 69) 7193 6637 Fax (49 69) 7193 2520

GENEVA
BNP Paribas 2 Place de Hollande 1211 Geneva 11 Switzerland Tel (41 22) 787 7377 Fax (41 22) 787 8020

LONDON
BNP Paribas 10 Harewood Avenue London NW1 6AA UK Tel (44 20) 7595 2000 Fax (44 20) 7595 2555

MADRID
BNP Paribas SA, sucursal en Espana Hermanos Becquer 3 PO Box 50784 28006 Madrid Spain Tel (34 91) 745 9000 Fax (34 91) 745 8888

MILAN
BNP Paribas Equities Italia SIM SpA Piazza San Fedele, 2 20121 Milan Italy Tel (39 02) 72 47 1 Fax (39 02) 72 47 6562

PARIS
BNP Paribas Equities France Socit de Bourse 20 boulevard des Italiens 75009 Paris France Tel (33 1) 4014 9673 Fax (33 1) 4014 0066

ZURICH
BNP Paribas Talstrasse 41 8022 Zurich Switzerland Tel (41 1) 229 6891 Fax (41 1) 267 6813

MANAMA
BNP Paribas Bahrain PO Box 5253 Manama Bahrain Tel (973) 53 3978 Fax (973) 53 1237

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